“We wanted to reinvent the small-business lending process, but we realized we didn’t have a credit background,” said Mr. Haber, who wants Bond Street to be faster, simpler and more open than banks. His firm offers loans of $50,000 to $500,000 at annual rates of 8 to 25 percent…
…Such alternative lending does have its skeptics. “It’s high-risk lending, an accident waiting to happen,” said Gerard Cassidy, a bank analyst at RBC Capital. One sign of risk came in a March report by Goldman Sachs, which pointed out that the loan approval rate of new small-business lenders is 62 percent, much higher than the 21 percent at traditional big banks., Randall Smith, “For Lending Start-Up, a Man Who’s Been Through a Few Cycles”, New York Times
“I think nearly all of these small business and consumer lending startups are going to fail. In this type of finance, the durable competitive advantage is a low cost and stable source of funds and leverage. In this regard, while regulated banks processes may be slow and screwed up, they beat the pants off of these poorly funded (not in capital….in debt, leverage, and cost of funds). And if they get any scale….welcome to the arbitrary regulation of the wholly unaccountable and highly political Consumer Financial Protection Bureau!!!! Finally, there is a reason that the leaders of these firms are 20-somethings and a few middle managers are 50-somethings with banking/credit experience. The 20-somethings think they can build a better process and credit mousetrap. They can build a better process, until they get regulated by the CFPB. They may be able to build a better credit mousetrap, but I doubt it…and with their high cost of funds, I think they are going to get adversely selected with much riskier credits than their models tell them. And the 50-something credit types they have brought in to provide “window dressing”….they really have no skin in the game…they are just relatively low-level (former bankers) hired guns. Count me as a big skeptic.”, Mike Perry, former Chairman and CEO, IndyMac Bank
For Lending Start-Up, a Man Who’s Been Through a Few Cycles
By RANDALL SMITH
Jerry Weiss, 57, second from left, at work in the offices of Bond Street, a start-up small-business lender in Manhattan. Credit Ruth Fremson/The New York Times
Through three decades, Jerry Weiss wore coats and ties to the offices where he managed credit risks at the nation’s biggest banks — a 50-story Citigroup tower in Queens and the 60-story Chase Manhattan Plaza in Lower Manhattan.
Now Mr. Weiss, who is 57, works out of a tiny two-room office in the Flatiron district, home of the start-up small-business lender he joined last year, where his younger colleagues make fun of his New Balance sneakers and “dad jeans.” His bosses at the start-up, Bond Street, are a pair of apple-cheeked Harvard graduates; and the average age of his seven colleagues is 28.
The culture collision reflects the latest challenge to big banks, in which risk-taking and jobs are flowing to dozens of new alternative lenders. The start-ups aim to reinvent small-business and consumer lending by offering quicker approvals, relying on automated credit checks that include data feeds from bank accounts and tax returns, salted with inputs from social media.
But the new businesses still need a few grizzled veterans who have lived through downturns and have learned what can go wrong. Louis Beryl, the chief executive of Earnest, a consumer lending start-up, said, “When you’re raising a lot of money from debt investors, they want to see someone who’s been through multiple credit cycles.” Earnest has a 45-year-old chief risk officer who previously worked at Barclays.
Mr. Weiss, in an interview at Bond Street’s office, said, “I have seen many online lenders who are bringing in some bright young people into the role I am doing, but they are folks who have never made a loan in their lives.” He added, “They think it’s all science and math, but they’ve never been through a recession.”
Bond Street is one of 25 digital small-business lenders that rely heavily on data analysis in making decisions, aiming at a market with $300 billion in outstanding loans, according to a report in April by Autonomous Research. Lending Club and several dozen other new lenders compete for an additional $450 billion in consumer and student loans. Such marketplace loans have risen from $1.2 billion in 2012 to $9 billion last year, according to Foundation Capital.
Bond Street was founded in October 2013 by David Haber, 27, its chief executive, who had investing experience at two firms, and Peyton Sherwood, 33, its chief technology officer, who had been a computer science major.
Mr. Haber, a San Diego native whose father managed a small department store in Tijuana, Mexico, previously worked at Spark Capital, where he helped partners invest in alternative lending start-ups like Orchard and Behalf, and the bank-data start-up Plaid.
It doesn’t hurt that Mr. Haber’s father-in-law, George Hornig, a Wall Street veteran of Wasserstein Perella vintage, made an angel investment in Bond Street and an introduction to the securities firm Jefferies, which will supply funds for the firm’s lending.
“We wanted to reinvent the small-business lending process, but we realized we didn’t have a credit background,” said Mr. Haber, who wants Bond Street to be faster, simpler and more open than banks. His firm offers loans of $50,000 to $500,000 at annual rates of 8 to 25 percent.
As he canvassed bank lending executives before starting Bond Street, Mr. Haber spoke with two Orchard founders, who had both worked for Mr. Weiss on Citigroup’s small-business risk team from 2009 to 2013.
“A lot of people his age and his level of experience would work at a very high-altitude level and not get into the details,” said David Snitkoff, one of the Orchard founders. “But Jerry also gets his hands dirty and gets things done on the ground.”
Mr. Weiss had previously worked in credit cards at Citigroup and JPMorgan Chase, and in small-business and branch-bank credit risk at Bank of America. In 2000, he helped with the creation of a small-business credit database shared by a half-dozen big banks.
Born in Far Rockaway, Queens, Mr. Weiss grew up in suburban Chappaqua, N.Y., attended Reed College in Portland, Ore., acquired a taste for the Allman Brothers Band and the Grateful Dead, and later earned a business degree at New York University. Though he wears T-shirts and sweaters to the office, as his colleagues do, he does have a thick gray beard.
“That was definitely a thought we had at the beginning — he’s a little bit older than most start-up people,” Mr. Sherwood said. But Eddie Serrill, Bond Street’s head of business development, said Mr. Weiss had “jumped in with both feet.”
Mr. Weiss has thrown himself into team building, manning the grill at a cookout to celebrate Bond Street’s first loan, arranging for water-skiing at the firm’s first off-site meeting at a borrowed Hamptons rental house last summer and helping with a recent paintball event.
At the big banks, Mr. Weiss sometimes seemed like “a cog in the wheel of upper management,” said his longtime friend, the food photographer Allen Owens. What’s more, Mr. Weiss chafed at being considered one of “the new villains,” with bankers being blamed for the 2008 financial crisis, his son Aaron said.
Mr. Weiss himself recalled being stuck in “endless meetings and endless levels of approvals for everything.” At Citigroup, he said, it took three years to develop a small-business underwriting platform and 18 more months to put it into operation. He added, “I wanted to break free and have fun again.”
But the going hasn’t always been smooth. Bond Street had to freeze new loans between last December and April while it sought new investors and loan sources. It recently obtained an infusion of new venture capital and a Wall Street lending facility that will allow the hiring of 25 employees over the next 18 months.
Such alternative lending does have its skeptics. “It’s high-risk lending, an accident waiting to happen,” said Gerard Cassidy, a bank analyst at RBC Capital. One sign of risk came in a March report by Goldman Sachs, which pointed out that the loan approval rate of new small-business lenders is 62 percent, much higher than the 21 percent at traditional big banks. Others worry that borrowers might skip the payments on such loans more readily than they would with other forms of debt.
Recognizing the risk, Mr. Weiss is bringing a distinctive quantitative approach to alternative lending. He has helped design Bond Street’s loan approval process to reflect automated inputs from credit bureaus, bank accounts, tax filings and QuickBooks online financial statements. The process also includes targets like expected profits of 1.2 times debt service. After seeing five past delinquencies in one applicant’s report, he observed, “This is a decline.”
But he also values personal contact with applicants to gauge their path to profitability. A coffee shop owner who was hoping to consolidate $55,000 in credit card debt into a new loan of $100,000 said on a call that he was seeking the money for “capital expenses, new hires and to load up the shelves.”
Mr. Weiss asked about the shop owner’s latest tax filings and QuickBooks updates, and about a new baby, who was audible in the background. “Customers like talking to the chief credit officer,” he said after the call. “And I love hearing their stories.”
A version of this article appears in print on May 14, 2015, on page B7 of the New York edition with the headline: Standout at Business Lending Start-Up, Dad Jeans and All.